Iconic financial firms are failing, Fannie and Freddie have been seized by the government and we still do not know the content of the Administration and Congresses’ $700 billion “bailout” bill let alone what impact it will have on financial markets. All of these circumstances have wrought a vastly different investing environment from that of just one or two years ago. Times are changing and we at Ockham Research find it necessary to make some revisions to the selected stocks that we highlight on the second page of our newsletter. Please take note of the nine stocks that we have replaced on our selected U.S. equity list as we strive to make the newsletter as useful as possible to our readers.

The credit crisis has spelled doom for many financial firms and many others have—because of their impaired state—been gobbled up by rivals. This massive consolidation in the financial sector accounts for eight of the nine replacements in our newsletter coverage.

For starters, we are replacing Lehman Brothers (LEH) which filed the largest bankruptcy case in U.S. history on September 15^th, 2008 after a nearly 140 year run. Similarly, we are replacing Washington Mutual (WM), which was seized by the Office of Thrift Supervision on September 25^th, 2008—ironically the 119^th anniversary of its founding. This was far and away the largest bank failure in American history, much larger than the 1984 failure of Continental Illinois. What remained (including debt) of its banking business was sold to JP Morgan Chase (JPM).

Fannie Mae (FNM) and Freddie Mac (FRE) have undoubtedly been hugely affected by the subprime loan crisis. On September 7^th, 2008 the government took control of these troubled mortgage giants under a conservatorship. This made formal the implied guarantee of the federal government for these government sponsored entities (GSE). We have also decided to remove AIG from our selected equities list. Not long ago this was the 18^th largest company in the world, but because of a liquidity crisis, AIG required a Federal Reserve bailout on September 16^th, 2008. Although the $85 billion credit facility was not as large as the bailout of the semi-public Fannie Mae and Freddie Mac, it was the largest government bailout of a private company in U.S. history.

Merrill Lynch (MER) and Wachovia (WB) fall into yet another category as companies that—although struggling—did not fail before being acquired.